Definition of derivatives

A financial instrument whose value is based on the performance of underlying assets such as stocks, bonds currency exchange rates, real estate. The main categories of derivatives are futures, options and swaps. [1]

Derivatives are financial instruments whose value is derived from the value of an underlying asset (such as gold, wheat or other commodities) or other financial instruments including bonds, or market benchmarks such as interest rates. [2]

ExampleThe value of the derivative is set out in a derivative contract, which can either be traded on an exchange, in what is called exchange-traded contracts, or traded off-exchange, in the over-the-counter market. [3]

Those traded on exchanges, such as interest rate futures, allow traders to speculate on the future direction of interest rates, and those privately negotiated between two parties are known as over-the-counter (OTC) derivatives. [4]